The BofA-ML report said fresh equity inflows hinge on an expected earnings recovery in September although India’s higher growth prospects and China volatility should limit outflows.

Equities typically struggle if FPI inflows dry up when valuations are rich, the report said adding that “we think stalling or reversal of capital flows at this point could, therefore, result in a Sensex correction, going forward”.

The benchmark BSE Sensex is currently hovering around 27,700. So far this fiscal, it has lost 555 points.

According to the global brokerage, RBI may need to inject liquidity through open market operations (OMO) in case capital inflows wear thin.

“We estimate that RBI will need to inject USD 45 billion to step up FY16 growth to 6 per cent (in old GDP series) from 5-5.5 per cent last year,” it added.

Meanwhile, portfolio inflows are likely to swing on three event risks in September-October. First, whether Fed would hike rates; second, whether September earnings would stage a recovery and third, the Bihar poll outcome, the report said.